Market Commentary on Forex …

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Indian rupee rose for the second consecutive session, supported by gains in domestic equities after foreign investors turned buyers following a 3-day of selling and overcoming earlier session’s high volatility.

The partially convertible rupee closed at 60.845/855 per dollar compared to 60.93/94 on Monday. The rupee moved in a wide range of 60.69 to 60.95 during the day.In the offshore non-deliverable forwards, the one-month contract was at 61.21 while the three-month contract was at 61.79.

India’s central bank RBI has kept its key policy repo rate unchanged as widely expected, but have warned about inflationary risks in case of a short-fall in monsoon rains, which may push food prices higher.

The RBI lowered banks’ minimum bond holding requirements, known as the statutory liquidity ratio (SLR), by 50bps to 22% to free up more money for lending, effective from Aug. 9. RBI has also cut the ceiling on debt that must be held-to-maturity by 50bps to 24%.

The new 10-year bond yield closed up 11bps at 8.61%, after the central bank’s plan to cut the statutory liquidity ratio sparked fears about new supply at a time when the country is already in the midst of a big borrowing spree.
The benchmark five-year swap rate closed up 13bps at 8.02%, while the one-year rate closed up 10bps at 8.43%. In call money market, cash rate closed at 7.25/7.3% against Monday’s close of 7/7.05%.

The U.S. dollar strengthened against major currencies on Tuesday, after a widely-watched gauge on the U.S. service sector beat expectations for July. The U.S. services purchasing managers’ index jumped to 58.7 in July from 56.0 in June.

Meanwhile in Europe, the single currency softened after data revealed that the service sector activity in Italy grew at a slower pace than expected in July, one month after hitting the highest level since November 2010. The service-sector activity in Germany and Spain grew last month, while the expansion in the French service sector remained marginal.

U.K. pound traded firmly against the dollar, after data revealed the U.K. service sector expanded at its fastest pace in 8-months in July.

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